India outsourcing shifts to higher-value work as AI slows hiring

India’s outsourcing industry is moving toward more specialized work as artificial intelligence automates routine tasks, with exports continuing to grow even as hiring at the country’s largest IT-services companies slows.

Software-services exports were growing about 12% from a year earlier by mid-2026, slightly faster than before the pandemic, according to research published on Wednesday, 16 September, by ING.

They have risen to about 5.2% of gross domestic product (GDP) from 3.3% before Covid, while business-services exports have more than doubled their share of GDP to 3.3% from 1.6%.

Deepali Bhargava, ING’s regional head of research for Asia-Pacific, said the export data showed little sign so far of a broad retreat in demand for Indian technology and business services because of AI.

The mix of work is changing more clearly. AI is increasingly being used for repetitive functions such as data entry, document verification, claims processing and parts of customer support. Coding tools are also allowing software companies to complete some development work with fewer people.

At the same time, more work is moving into software development, analytics, finance and accounting, risk management, engineering, research and development, legal services and compliance, according to ING.

Many of those functions are being handled by global capability centers, or GCCs, set up by multinational companies in India rather than outsourced to traditional IT-services providers.

India’s digitally delivered services exports have grown 45% since 2022, compared with 32% globally, according to ING’s analysis of World Trade Organization data.

Within that category, other business services, which include consulting, management services and research and development, have grown at an average annual rate of 15% since 2022. The comparable global rate was 9.3%.

ING said the growth has allowed India to increase its share of global digitally delivered services even as several large Asian economies, including China and Japan, have recorded weaker performances.

India already accounts for more than half of the global outsourcing industry, according to ING. Software-services exports generate about $205 billion annually, and the industry supports millions of workers.

Hiring, however, is becoming less closely tied to revenue growth. India’s five largest IT-services companies added a combined net 17 employees in the first nine months of fiscal 2026, compared with 17,764 in the same period a year ago, according to a February report by investment firm KKR.

The figure measures the net change in reported headcount, rather than gross recruitment, and was heavily affected by workforce reductions at Tata Consultancy Services Ltd.

KKR said the sharp slowdown suggested that Indian IT companies were moving toward leaner, more automated delivery models, particularly as AI allowed them to increase output without expanding staff at the same rate as before.

Other factors have also weighed on hiring, including weaker discretionary technology spending and cautious demand from overseas clients.

The broader industry is still adding workers. Nasscom expects employment in India’s technology sector to reach about 6 million in fiscal 2026, up 2.3% from the previous year, an increase of roughly 135,000 employees. The industry body expects sector revenue to exceed $315 billion.

The difference partly reflects where employment is growing. Large IT-services firms that traditionally hired workers in large numbers are becoming more selective, while GCCs continue to expand in India. Demand is also shifting toward workers with skills in AI, cybersecurity, analytics, software engineering and other specialized areas.

Nasscom said technology companies are moving away from delivery models based largely on the number of employees assigned to a client and toward contracts tied more closely to outcomes and productivity.

That shift puts greater pressure on some junior and mid-level roles, where repetitive work is easier to automate or augment with AI.

ING cautioned that detailed sector-level employment data for India remain limited, making it difficult to measure how much of the hiring slowdown can be attributed specifically to AI.

Export data are clearer. Software and business-services exports together amount to about 8.5% of India’s GDP, compared with a current-account deficit of roughly 0.5% of GDP, according to ING. That makes the sector an important source of foreign currency for an economy that regularly runs a large merchandise-trade deficit.

The growth of higher-value services also makes India less dependent on the older outsourcing model built around sending large volumes of relatively low-cost work to offshore employees.

Multinationals have expanded captive technology and business operations across Bengaluru, Hyderabad, Pune, Chennai, Gurugram and other Indian cities, taking on functions that were once kept closer to corporate headquarters.

ING said the available evidence does not show AI causing a broad contraction in India’s services exports. Instead, export growth is becoming increasingly concentrated in work requiring greater technical or specialist knowledge.

Nasscom expects that change to continue. Its outlook for fiscal 2027 says hiring is likely to move further away from volume recruitment toward specific skills as companies capture more productivity gains from AI.